Dow component The Walt Disney Company (DIS) eased shareholder anxiety in Thursday's post-market, reporting strong fiscal fourth quarter results underpinned by lower-than-expected start-up expenses for the upcoming Disney+ streaming service. Unusually high costs lowered profits in the prior quarter, triggering a sharp reversal, followed by three months of indecisive price action. That changed overnight, with an impressive rally that has added more than 5% ahead of Friday's opening bell.

The entertainment giant posted a profit of $1.07 per share, $0.10 better than consensus estimates, while in-line revenues rose an impressive 33.6% year over year. "Toy Story 4" and "The Loin King" remake underpinned a 52% surge in movie revenues, while theme park metrics were undermined by a decline in Hong Kong Disneyland due to civil unrest. Broadcast and cable divisions reported solid ad growth and controlled expenses, while streaming initiatives at at ESPN+ and Hulu added to the bottom line.

Disney+ launches next week in the United States and Canada, while the majority of Europe comes online in 2020. The company intends to offer a broad selection of original programming, with more than 45 series, specials, and movies, with that number expected to grow to more than 60 new entries at the end of 2024. The service will be widely available out of the gate, with partnerships in place at Apple Inc. (AAPL), Alphabet Inc. (GOOGL), Microsoft Corporation (MSFT),, Inc. (AMZN), and Roku, Inc. (ROKU).

An over-saturated streaming market could affect growth in coming years, despite huge excitement about the launch. Apple will be unveiling its service next week as well, followed by entries from Comcast Corporation (CMCSA), AT&T Inc. (T), and Discovery, Inc. (DISCA). Potential customers already have a dazzling array of entertainment choices and may not be willing to shell out cash at the pace needed by these companies to meet lofty projections.

DIS Long-Term Chart (1998 – 2019)

Chart showing the share price performance of The Walt Disney Corporation (DIS) 

A multi-year uptrend stalled in the low $40s in the second quarter of 1998, giving way to a trading range, followed by a failed breakout attempt in 2000. The stock sold off through range support a few months later, entering a steep downtrend that continued into July 2002's eight-year low in the mid-teens. A recovery wave through the middle of the decade stalled below the prior peak in 2007, ahead of a vertical slide during the 2008 economic collapse.

The downdraft ended less than two points above the 2002 low in March 2009, giving way to a V-shaped bounce that completed a round trip into the prior high in 2010. The stock broke out above that resistance level two years later, entering a strong uptrend that posted the strongest returns so far this century. The rally finally ended in 2015 after troubles at the ESPN division undermined bullish sentiment.

Disney finally cleared the 2015 peak near $120 during an April 2019 breakout that attracted intense buying interest. The uptick recorded an all-time high at $147.15 in July, just ahead of a poorly received third quarter earnings report that dumped the stock into the 200-day exponential moving average (EMA) in early October. This morning's uptick has confirmed support at that level while reaching with seven points of the summer peak.

The monthly stochastics oscillator entered a sell cycle in August 2019 and crossed into the oversold zone this month (yellow box). It could cross to the upside and set off a buying signal after Friday's session, matching similar indicator turnarounds in 2017 and 2018. However, for the moment at least, the actively bearish cycle raises the odds that the stock will face additional selling pressure despite the euphoric reaction to last night's report.

The Bottom Line

Disney is trading sharply higher on Friday morning after posting strong fourth quarter results and well-controlled roll-out expenses for the new streaming service, set for release next week.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.